Nickel production costs by the largest of Russian producer, Norilsk Nickel, have been a mystery since 2007. Recent data published by the company states that the smelting 1 ton of metal at the Polar Division (Norilsk Industrial District, Taimyr Peninsula) costs $5,855, and on the Kola Peninsula it costs $7,712. The average price of nickel on the LME in 2007 was $40,000.

Five years later, in 2012, when the price of nickel fell by 25% to $16 700 per 1 ton, former CEO, Vladimir Strzhalkovsky, reassured the shareholders: "There is no reason to worry, the company can remain profitable and maintain profitability even if the nickel price hits $15 000 per 1 ton. " Now nickel on the LME costs $10 000 per 1 ton, but the EBITDA margin of Norilsk Nickel during the first six months of the year was 47%. The company's top management has been repeating for four years: nickel production cost is only at the beginning of the cost curve.

And only last week it became know from the presentation of UC Rusal on the placement of Eurobonds that nickel production costs of Norilsk Nickel were negative: about minus $9,000 per 1 ton. According to the data, which UC Rusal used for the presentation to investors, the figures were based on the presentation of Norilsk Nickel for 2015; it schematically shows the cost of the world's manufacturers, but the place of Norilsk Nickel is not indicated on the cost curve. It is not clear where UC Rusal took that data. The representative of UC Rusal gave no explanations. 

Proceeds from the sale of copper and platinum group metals (platinum, palladium, and others) covers all costs of production, explains the representative of Norilsk Nickel. The given data is the method of estimating the cost of production of nickel by Wood Mackenzie, he adds. "The result is floating, it depends on several factors: the price of copper and platinum group metals as well as the rate of the local currency," said the representative of Norilsk Nickel. "The indicated [in UC Rusal presentation] data was the actual figure for Q3 2016; in another period it may differ significantly. Nevertheless, basing on this methodology one can conclude that Norilsk Nickel is the company with the lowest cost of production of nickel in the world."

Norilsk Nickel does not separate the costs of production of certain metals and, therefore, does not disclose them, continues the company's representative. In principle, it is possible to calculate the cost of nickel by subtracting the revenue from by product metals (copper, platinum, palladium), and only then dividing by production by tons, says ACRA analyst, Maxim Khudalov. After all, the content of the accompanying metals in the company's ore is very high. Much higher than, for example, in Indonesia, heindicates. Norilsk Nickel really has a unique resource base, agrees chief analyst of BCS, Kirill Chuiko. Such reserves are possessed by nearly no one else in the world.

Portfolio Manager of MC Capital, Dmitry Postolenko, is skeptical about such method. It is necessary to share the costs among all the metals, so it will be easier to see the profitability of each metal, he believes. 

During the first half of 2016, the company's revenue was $3.6 billion. Nickel gave 35.8%, copper — 24%, and the platinum group metals and other metals — 40%. According to the consensus forecast of Bloomberg, Norilsk Nickel at the end of 2016 was the most efficient producer of nickel in the world, his closest rival Rio Tinto was expected to have EBITDA margin only at the level of 22.5%.